Lee Hsien Loong on What Singapore Can—and Can’t—Teach China

By Hu Shuli and Zhang Hong

As one of the Four Asian Tigers, Singapore is known for its strong economy and orderly society. The city-state, with its population of 5.3 million people, is listed by the World Bank as fourth in the world in terms of per capita income. As a regional business hub, it is lauded for its sound business reputation and the transparency of its government.

Singapore has also been something of an example for China over the past three decades. A visit by Deng Xiaoping in 1978 provided inspiration for China’s reform and opening up.

Meanwhile, many Chinese officials have studied Singapore’s style of governance. Over the past thirty some years, more than 10,000 Chinese officials have visited Singapore for governance training. What they witnessed is a democracy combined with one-party rule and elitism. They have also seen an open economy that is accompanied by strong state-controlled investment vehicles.

Since 2013, China’s new leadership has pursued various reform measures that, some argue, reflect the Singapore style. On the one hand, the market’s role has been further highlighted in resource allocation, and on the other, efforts to fight corruption have intensified.

But the debate over whether the experiences of Singapore can be copied in China has been fierce. After all, the two differ in population size and political systems, and the city-state lacks the regional disparities of China.

Nevertheless, the transformation of Singapore in recent decades can offer valuable lessons to China as it reforms. In an exclusive interview with Caixin in early February, Prime Minister Lee Hsien Loong discussed his expectations for Singapore’s future and challenges confronting the country.

Lee is Singapore’s third prime minister and the eldest son of Singapore’s first prime minister, Lee Kuan Yew. Before taking office in 2004, he served as the minister of trade and industry, finance minister, and deputy prime minister.

Lee shared his views on Singapore’s efforts to balance policy, political institutions, and corruption-fighting efforts. He also discussed its role in Asia-Pacific and the prospects for regional cooperation. Excerpts of the interview follow in the first of a two-part series.

Caixin: I’ve frequently visited this country over the years and I’m so impressed with the prosperity and economic growth. Would you share your vision for Singapore’s economic growth?

PM Lee Hsien Loong: In terms of income levels, we are at about developed country levels, in fact higher than some developed countries. I think in terms of the depth of our capabilities, in terms of technology, in terms of the strength of our enterprises, we don’t have so many multinational corporations, we are not so strong in research, development, entrepreneurship. We want to keep on growing, we want to keep on improving the lives of our people materially, which means our GDP has to go up. But also in the more intangible aspects of life—quality of life, the environment we live in, the tone of the society, the way we treat one another. And that is continually a work in progress.

So when it comes to Singapores sustainable development, is there a road map in your mind?

I think that we have to develop connectedness to the rest of the world, and stay particularly connected to our region in Southeast Asia and Asia, a region which is prospering, a region which offers us many opportunities. I think our people are hard-working, they are reasonably talented. Given the right education they can do well. But I think the best way to make use of their talents and their abilities is not just to confine it within Singapore, but to connect to what’s happening around us. So if a company sets up an operation in Singapore, it’s not just for a market but for the region. If it sets up a headquarters in Singapore, it’s the headquarters for the whole of Asia or the whole of ASEAN. And if our people have ability as managers and leaders, they can be managers and leaders not just in Singapore but they can go out.

There are many operations, many companies all over the region which will find a good Asian executive a very considerable asset. So Singaporeans can be in Singapore, can be around us in the region, and we can have a diaspora, a network and a home.

On the subject of domestic economic policy, how do you balance competition between small and medium-sized enterprises (SMEs) and state champions?

We don’t have state champions very much. We have some companies which are owned directly or indirectly by the government through Temasek and a few other vehicles. But to a very large extent, we require them to operate commercially. They do not get special privileges from the government. Neither do they carry duties imposed on them by their government. So they operate commercially, they have their own boards, which make decisions for them. They are often listed on the stock market, so they are publicly listed. And their shareholders hold the boards responsible for the performance of their companies. So I would not say it’s a division between state enterprises and SMEs.  I think in this environment with an economy which is changing quite rapidly, it is especially challenging for SMEs to keep up with the pace of change because costs go up and business conditions change. The way they used to do business before, tomorrow that niche may disappear and they have to find a new niche.

A big company, you’ve got some balance, some stability and you can move one step forward at a time; with a small company, you only have one small footprint and it’s not so easy to jump. So we are making an extra effort to help SMEs adapt in this environment, and some of them are doing well.

Maintaining competitiveness and care for the needy is always hard to balance. How do you view this challenge?

We have to keep a balance because in every society there is that yin and yang. The yang which is the competitive element which drives society forward, and the yin, the softer, maybe you can say the feminine element which expresses our care and concern for one another and the way we help one another go through life and form a society together. So we have to have the right balance.

If you go too much toward competitiveness, you lose that cohesion and sense of being Singaporeans together. If we go all the way the other way and say, well, we don’t compete and everybody will be first in class, I think nobody will be first in class and we will all be losers! China has shifted from a very “da guo fan” iron rice bowl system to one which is very competitive. We have operated a competitive system which has targeted significant social safeguards on public housing, in health care, in education, and in this phase with the competitive environment for Singapore getting fiercer.

With conditions getting more challenging for the middle- and the lower-income people in many societies, I think we need to do somewhat more to tilt the balance toward the yin side. That means to give greater help to the low-income groups, so they can increase their earnings and their assets to keep our society more open, so people who have talent can move up and will not be daunted by the gaps in the incomes between the rich and poor. That is what we have been doing.

Singapore owes its success to the great design of its political institutions. The world is changing, so can the current political structure always maintain its relevance?

I think political structures have to gradually evolve with time. We have developed the scheme we now have over the years. We started off with the British Westminster model and then we’ve adapted it, changed it over the years to get quite a unique model which we have in Singapore. It is still based on a parliamentary system but with certain safeguards and enhancements. For example, the president is independently elected.

Also, we have special arrangements which ensure minority communities will always be represented in parliament, but in a competitive sort of way. I think as we go forward we will have to make further adjustments, surely, because our society will change. How it will develop I think it’s hard to say.

I believe that there will be a greater degree of competition. There will be a greater desire of Singaporeans to participate in the political process, and we ought to accommodate that because it’s good that Singaporeans care about the affairs of the country and which way Singapore is going. But whatever we change we still want a system where you encourage good people to come forward, you encourage voters to elect people who will represent their interests well, and you encourage the government to act in a way which will take the long-term interests of the country at heart. And that’s not easy to do.

What do you think of the competition between Singapore and Hong Kong? It seems that Singapore is in a leading position now.

I don’t worry too much about competition with Hong Kong because I think we are in different positions. Hong Kong is very successful economically, on the doorstep of China, servicing the Chinese market and taking full advantage of that. Singapore is in a different position in Southeast Asia. The Chinese market is important to us, but at the same time we also focus on Southeast Asia, on South Asia, India, and on the rest of the world. So there’s some rivalry. We watch them, they watch us to some extent, but I don’t worry about that.

As a financial center I think we are in different positions. Big Chinese companies, many are listed in Hong Kong. Smaller companies, some of them are in Singapore, but I think that’s just a small proportion of all the business there is in China. I think the world is big enough for both of us.

What’s your view on China’s economic and financial outlook? What do you think about the role of the yuan?

I think the Chinese government is gradually liberalizing restrictions on the yuan and they would like it to play a greater role in international finance, so there are swap arrangements for the yuan and several Asian countries. There are offshore settlement banks for the yuan, including one in Singapore, and settlement centers. They’ve got it in Singapore, they’ve got it in Hong Kong, I think they’ve got it in Britain. So I think this is a prudent way to approach it, gradually to liberalize. But to open up completely the way the U.S. dollar or the yen or the euro are completely open on a capital account, I think there’s a very major distance to go and I think it will probably take quite some time yet.

Singapore is good at fighting corruption, and has clean and efficient civil servants. China is in the process now of an anti-graft campaign. What should be the next step and are there any lessons China can learn from Singapore?

I think China’s circumstances are very different from ours. Your scale is much different from ours. I mean, we are the equivalent of one small city. Even Shanghai has 20 million people, four, five times the size of Singapore. So what we do in Singapore is not so easy to do all over China. I once had a discussion with a vice mayor in Shanghai, and he said to me, “You pay your ministers well, and your civil servants well, properly. And if we were Shanghai, all by ourselves, we could do that also. But if I did that, people to the west of me would have a view, people to the north of me would have a view, the people to the south of me would have a view, the people in the center would have a view. So it is not so easy for me to move, and it’s a real problem, it’s a different situation.”

But in Singapore, what we have tried to do is have strict rules, to have transparent systems, so if there is an exercise of discretion, it cannot be completed without checks and balances. But there will have to be some accounting: How was this discretion exercised? Why was it exercised this way? If anybody is discovered to be corrupt or suspected to be corrupt, we will investigate it and we will bring him to justice, however high up or sensitive the post he may hold is.

At the same time, we make sure we pay our civil servants properly, a wage commensurate with the quality of the officer and commensurate with the responsibilities which they hold so that there is minimum temptation for them to do something on the side in order to take care of the family. But it has to go together. You pay people properly, but at the same time you must hold people to high standards, and bring them to account and justice if anybody does anything wrong. And in the last couple of years we’ve had a couple of cases which were quite prominent. Some have to do with sex, some to do with money. Quite senior officers. It embarrassed us, but it cannot be helped. We have to follow through. You cannot be limp-wristed.

A clean government is a dream of China’s. You mentioned accountability and high pay. You said both are important together, but which one is more important?

I think you need both and I think both are very difficult to do because to pay people well you have to be able to justify and defend it, and there’s always a public sense that in the public sector you ought to make a sacrifice. To some extent that is true, but if the sacrifice is too great, it’s not realistic and the system will not work. Expecting high standards is also not easy because people have careers and livelihoods. It’s never a light decision to decide that somebody is not up to the mark, and you have to move him out or maybe remove him from the service altogether.

You have to start somewhere. You could start with one place, you could start with one service. In some countries, they have tried to do it starting with the finance ministry, with customs, with immigration, where you’ve got more opportunities to be tempted. There is no easy solution, but I see that China is taking it very seriously, and catching tigers as well as flies.